Sparse and disappointing New Zealand ecostats enabled the GBP NZD exchange rate to largely advance over the past seven days despite cool appetite for the Pound.
Subdued Pound able to Gain Thanks to New Zealand Dollar Weakness
While the GBP NZD exchange rate spent the majority of the past seven days advancing, this has had little to do with positive market sentiment towards the Pound. GBP has been largely without support recently as fears over Brexit continue to weigh on the minds of investors.
This week’s Pound movement has largely been dictated by rumours that Bank of England (BoE) Governor Mark Carney intends to quit his post. Carney has come under fire ever since the EU referendum results were announced; while he defends his economic warnings as a vital part of his responsibility as head of monetary policy, Brexiters have accused him of breaching the BoE’s neutrality.
Fears he would quit eroded recent Pound New Zealand Dollar exchange rate gains yesterday and continue to do so today, despite Carney having announced his intention to remain at the BoE until June 2019. The latest UK manufacturing PMI has also cooled Pound sentiment, even though the new score of 54.3 still leaves the index in a strong position.
Speculation over Monetary Policy Keeps New Zealand Dollar Weak
The New Zealand Dollar has been largely driven by speculation over the last week, with domestic data fairly thin on the ground. What data there has been was not supportive. September’s trade balance figures surprised to the downside, showing that the deficit widened from -1265m to -1436m instead of falling to -1123m. This took the year-to-date trade balance from a downwardly revised -3109m to -3404m.
Later in the week it was revealed that the contributions made by the dairy sector to the economy had almost halved since hitting their peak in 2014. Payments made to New Zealand’s farmers by Fonterra, the world’s largest dairy cooperative, have fallen to NZ$8 billion from a high of NZ$15 billion.
The New Zealand Dollar managed to recover from last week’s lows by the weekend, but has since resumed a choppy downtrend. Speculation that the US Federal Reserve will hike interest rates next month, combined with fears the Reserve Bank of New Zealand (RBNZ) will cut the official cash rate, kept appetite for the ‘Kiwi’ weak.
GBP NZD Exchange Rate Forecast; NZD to Regain Strength after Unemployment Data?
Today’s UK data has already been released, leaving key New Zealand ecostats to drive GBP NZD exchange rate movement. The results of the Global Dairy Trade auction will be released this afternoon, while labour market data follows during the Australasian session. The unemployment rate is forecast to hold steady, while the rate of employment change is expected to rise from 4.5% to 5.4% on the quarter.
Tomorrow, the RBNZ’s 2-year inflation expectation figure could give an indication of the direction of future monetary policy.
The Bank of England is due to announce the latest monetary policy changes on Thursday. No changes are expected given the strength of recent data. If policy is frozen this could support the Pound thanks to the vote of confidence in the economy. A surprise rate cut or expansion of QE would shock the markets, sparking a GBP rout.